Decentralized peer-to-peer lending protocol, C.R.E.A.M. Finance, announced it is launching a protocol-to-protocol flash loan product through the Iron Bank, to increase capital efficiency and expand the scope of decentralized finance (DeFi).
“Bringing protocol-to-protocol flash loans to the will increase capital efficiency and provide deeper liquidity for traders looking to access more lucrative lending services across a wider variety of digital assets,” said Leo Cheng, Co-Founder and Project Lead at C.R.E.A.M. Finance.
The Iron Bank, which has accrued $425 million USD in total value locked (TVL), is the first lending protocol to allow other protocols to borrow from its pools in a permissionless manner, currently available to Alpha Homora v2 and Yearn Vaults.
The Iron Bank lending platform and liquidity backbone will service the entire Ethereum DeFi ecosystem and beyond, including the Yearn Ecosystem.
This launch will allow Yearn strategists to leverage flash loans across more assets at lower costs, broadening the scope of strategies that they can run.
Flash loans on C.R.E.A.M. cost 0.03%, which is less than Aave (0.09%) and Uniswap (0.3%), and covers the widest variety of digital assets on the market, including LP tokens.
In addition to the Iron Bank, flash loans will also be available to users on Cream v1 at app.cream.finance across Ethereum, Binance Smart Chain, and Fantom.
A flash loan is an uncollateralized loan where a trader borrows, exchanges, and repays a debt in a single transaction using a smart contract.
This is possible with no collateral because the loan will not execute without all parties lending, borrowing, and being repaid simultaneously, alleviating the risk of a trader defaulting on the loan.
A simple example of a flash loan is performing arbitrage trades to make a profit based on minor price differences between exchanges.
For example, Uniswap is displaying ETH for $2000 and Sushiswap is trading for $2005. A user could execute the following flash loan from the Iron Bank within a single transaction:
- Borrow $1,000,000 USDC from Iron Bank
- Purchase the ETH from Uniswap at $2000 / ETH
- Sell the ETH on Sushiswap at $2005 / ETH
- Return the initial USDC loan back to the Iron Bank
The result here is a profit of $5000 from a single Flash Loan transaction. Note: this example excludes gas fees and slippage.
While existing money markets like Cream v1 are peer-to-peer, the Iron Bank will enable protocol-to-protocol lending and liquidity.